Oil rises 3% after Iran launches missile attack on Israel

Nasdaq drops more than 1 per cent as tension in Middle East increases

Smoke rises as a result of Israeli air strikes in southern Lebanon. EPA

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Oil prices rose 3 per cent on Tuesday after Iran fired a barrage of missiles against Israel in a significant escalation in the Middle East.

Brent, the benchmark for two thirds of the world's oil, closed 3.24 per cent higher at $74.02 a barrel. West Texas Intermediate, the gauge that tracks US crude, rose 3.26 per cent to $70.39 a barrel. Prices for both benchmarks had risen to as much as 5 per cent.

Iran launched a barrage of more than 100 missiles against Israel for what the Islamic Revolutionary Guard Corps said is a response to the killings of Hezbollah leader Hassan Nasrallah and other militant leaders. Israel vowed to retaliate against Iran.

The Pentagon said Tuesday's barrage was about twice as large as Iran's attack on Israel in April. Lindsey Graham, senior Republican US senator and staunch supporter of Israel, called on President Joe Biden's administration to respond by striking Iran's oil refineries.

“This missile attack against Israel should be the breaking point and I would urge the Biden administration to co-ordinate an overwhelming response with Israel, starting with Iran’s ability to refine oil,” Mr Graham, an anti-Iran hawk, said in a post on X.

Iran's retaliation comes as Israel increases its military assault against Hezbollah in Lebanon. Israeli air strikes have killed more than 1,000 people and displaced about a million in the past two weeks, with the southern Beirut suburb of Dahieh, a Hezbollah stronghold, a prime target.

Oil prices fell earlier in the day on prospects of higher crude supply from Libya. Libya’s eastern parliament has appointed Naji Belqasem as the country’s new central bank governor after the dismissal of Sadiq Al Kabir last month, which sparked a political crisis that resulted in the country’s production falling by more than half.

This decision may help to increase the country's oil production, which stood at 1.2 million barrels per day before the crisis. Earlier on Tuesday, the chairman of the commodities trading company Gunvor said he is “confident” the continuing clashes in the Middle East will not have any impact on oil supply.

“I'm very confident that this will not have any impact at all on oil supply,” Torbjorn Tornqvist said at an energy event in Fujairah. He described the situation in the Red Sea and Yemen as more of a “nuisance” than a threat to crude oil supplies and said the market is mainly worried about slow growth in demand for oil.

Brent prices are down nearly 18 per cent since reaching a high of $91 a barrel in April, in part due to concerns around fuel demand in China, the world's second-largest economy and top crude importer.

Last week, China unveiled its largest economic stimulus package since the pandemic, which includes a reduction in its key short-term interest rate and a lowering of mortgage rates for existing housing loans. The measures aim to combat a slowdown in the country's economy, which is facing deflation, weak consumer spending, a slumping property market and a manufacturing downturn.

“Generally, what we call the golden decade of China [involved] massive build-out of heavy industries, construction and so forth. I don't see the same type of growth. It's not as energy intensive,” Mr Tornqvist said. “They are having their growth also by taking a lead technologically through electric vehicles."

Wall Street dips

Wall Street fell slightly during trading amid the increasing tensions, with major US indexes ending the day in red.

The Dow Jones Industrial Average fell 0.41 per cent – or 173.18 points – to 42,156.97 when trading closed. The S&P 500 and Nasdaq Composite retreated 0.93 per cent and 1.53 per cent, respectively.

“I'm surprised, given the potential gravity of the situation, that the markets did not react with a more strong, negative closing,” said Peter Andersen, founder of Andersen Capital Management.

Gold closed 0.87 per cent higher at $2,683.20 an ounce. US Treasury yields ended the day little changed.

Meanwhile, new economic data showed that the US labour market is still in a stable yet fragile position. Job openings rebounded to 8.04 million in August, the Labour Department reported, while the layoff rate remains low, in a good sign for the jobs market.

“That said, the continued decline in labour market turnover is consistent, with the survey data pointing to deteriorating confidence in labour market prospects,” Wells Fargo economists wrote to clients.